The government has decided to give incentives to the private sector to try and increase the amount of loans that are made available for low-cost, affordable housing.
The incentives could be insurance products that would help mitigate the high risk-low value nature of housing loans provided to low-income groups, said S. Sridhar, chairman and managing director of National Housing Bank, a subsidiary of the Reserve Bank of India.
A sub-committee of the country’s leading bankers, formed to assess “risk mitigation” measures that would allow private financiers and housing finance companies to lend to low-income groups and economically weaker sections—traditionally the most underserved in the housing market—is expected to submit its recommendations to the ministry of housing and urban poverty alleviation within four weeks.
Sridhar is also chairman of a 12-member subcommittee, which includes state-owned banks, housing finance institutions as well as non-governmental organizations and micro-finance institutions.
The low-cost housing segment accounts for the bulk of the housing shortage in India.
The ministry of housing and urban poverty alleviation estimates a shortage of 21.78 million houses for the economically weaker sections—accounting for 88% of the gap in housing stock in the country.
The urban population in India—28% of the total population—lives on 1.5% of the country’s total land.
“In low-cost housing today, the government is the sole financier,” Sridhar said at a conference on urban poverty earlier this year. “This committee is exploring a different financial architecture to make loans for low-cost houses affordable for both the lenders and borrowers,” Sridhar added.
An industry executive at a mortgage finance company said on condition of anonymity that most banks are reluctant to lend to low income groups because the small amounts wouldn’t justify the cost to the company.
“When we constituted the committee, we had given them a mandate to find ways to provide cheaper loans for the low-income groups and economically weaker sections of society,” a senior ministry official said, also on the condition of anonymity.
The ministry is also organizing a conference of real-estate builders, banks, housing finance institutions and the finance ministry in the first week of June.
The conference will try and bring all the key players in the housing market together and figure out a way to address the housing shortage, the official said.
While the amount given in loans has increased exponentially over the past five years, the increase has mostly been due to rise in property prices and not the volume of loans, Sridhar said. Loans for Rs2 lakh and below fell from a peak of 50.6% of total loans disbursed to 13.7% in 2005. At the same time, loans for Rs10 lakh and above increased from 3.7% in 2000 to 22.7% in 2005. The institution had recently decreased the risk weightage—the amount that banks are required to set aside for every rupee in loans it gives— from 75% to 50% in an effort to boost loans under Rs2 lakh.
Part of the problem that the NHB and housing finance institutions are facing is a shortage of data on loans for affordable housing. “What we do know is that most of the growth in housing loans is dictated by increase in property prices and value of loans,” Sridhar said. The bank will collate segment-wise data on loans, pre-payment behaviour—data that banks have previously not collected, he added.